Marketability and Default Influences on the Yield Premia of Speculative-Grade Debt

Abstract

Following several years of severe price volatility, market uncertainty and a number of well-publicized controversies, the issuance of high-yield bonds virtually ceased by 1990, suggesting that interest in these instruments might disappear as well. During 1991 and 1992, however, total annual returns on high-yield bonds approached 40%, and with it record new issuances. Analysts and investors alike have since revisited the unresolved questions regarding risk of high-yield bonds and their associated yield spreads.